The expansion of world output as a result of trade is mainly due to the effects of
A)Higher trade barriers.
B)Improved terms of trade.
C)Specialization according to comparative advantage.
D)Specialization according to absolute advantage.

Question

Quizplus · Accepted Answer

The main reason for the expansion of world output as a result of trade is specialization according to comparative advantage. This is when countries produce and export goods and services that they can efficiently produce at a lower opportunity cost than other countries. As a result, there is an increase in total output and efficiency in the global economy. Higher trade barriers (choice A) would actually hinder trade and limit the expansion of output. Improved terms of trade (choice B) can increase the value of a country's exports relative to its imports, but it doesn't necessarily lead to an expansion of world output. Specialization according to absolute advantage (choice D) is when a country produces goods and services at a lower cost than others, but it may not necessarily lead to an expansion of output for other countries or the global economy as a whole.

The Expansion of World Output as a Result of Trade